WSEAS Transactions on Mathematics
Print ISSN: 1109-2769, E-ISSN: 2224-2880
Volume 15, 2016
Optimal Investment and Risk Management for Open-Ended Funds Under Heston’s SV Model
Authors: ,
Abstract: This paper considers the optimal investment and risk management strategies for a manager of open-ended funds under Heston’s stochastic volatility model. The manager is allowed to invest the fund in a financial market, which consists of one risk-free asset and one risky asset whose price process satisfies Heston’s SV model. The objective of the fund manager is to maximize the expected exponential utility of the terminal wealth of the fund assets. We obtain the optimal strategies and value function via stochastic optimal control approach explicitly. Moreover, a verification theorem is provided and the properties of the optimal strategies are discussed. Finally, sensitivity analysis is presented to illustrate the influences of parameters on the optimal investment strategy and redemption limit.
Search Articles
Keywords: Open-ended funds, Subscribe and redeem, Compound Poisson process, Stochastic volatility, Hamilton-Jacobi-Bellman equations, Stochastic optimal control
Pages: 126-135
WSEAS Transactions on Mathematics, ISSN / E-ISSN: 1109-2769 / 2224-2880, Volume 15, 2016, Art. #12